Fed economist says U.S. recovery to be painfully gradual

A painfully gradual U.S. recovery should start in the third quarter, even as the job market is still weakening, said an economist with the San Francisco Federal Reserve Bank.

The recent vicious cycle, in which losses by banks lead to tighter credit availability and then lower household and business spending, has begun to slow, economist Mary Daly said in the bank's latest FedViews newsletter.

Whether that improved trend continues, however, depends in part on the labor markets, which continue to deteriorate, Daly said in the report, which was dated July 9 but posted on the bank's website on Tuesday.

The official jobless rate plus those involuntarily working only part-time add up to more labor market slack than in the 1982 recession, and the measure will rise even higher by year end, she said.

The bank's economic team said real GDP should grow by about 1 percent in the third quarter, and continue to creep higher through the end of 2010. Core inflation, meanwhile, could fall toward 1 percent during 2010, they said.